The majority of salaried retirees and employees, along with unsecured creditors, voted in favour of Stelco Inc.’s restructuring plan in meetings on Thursday afternoon.
Under the plan, Stelco will no longer be responsible for administering the salaried group’s pension plans and other post-employment benefits. The company taking over Stelco, Bedrock Industries Group LLC., will contribute $30 million among all employees’ pension plans, with additional funding coming from other financial vehicles created by the transaction.
“The settlement we reached was a favourable and meaningful settlement for the employees and retirees,” says Andrew Hatnay, a partner with Koskie Minsky LLP’s benefits and pension practice and legal counsel for the non-unionized employees. He notes the alternative solution, company liquidation, comes with too much risk and uncertainty. “The outcome could be worse than the outcome in the plan.”
The other group of unsecured creditors voting on Stelco’s restructuring plan included commercial entities and retirees owed post-employment benefits, says Hatnay.
While the retiree creditors voted in favour of the plan, the commercial entities rejected it and are opting to receive a percentage of their claim, says Hatnay. He estimates those creditors will receive 10 cents for every dollar claimed but he notes that may change.
As for the group claiming unpaid other post-employment benefits, Hatnay says they’ve decided to approve Stelco’s plan in exchange for the continuation of their benefits. “That’s the deal. Instead of being paid 10 cents to a dollar, we agreed to an establishment of vehicles that will resume payments of the other post-employment benefits.”
But while the approval moves Stelco’s restructuring plan forward, there’s still a long way to go, says Hatnay. The plan calls for new collective agreements with the company’s unions, the United Steelworkers Local 1005 and Local 8782, before it goes ahead.
Gary Howe, president of Local 1005, is critical of the proposal and finds some of its conditions, specifically the reduction in other post-employment benefits, inadequate.
According to Stelco’s restructuring plan, retirees won’t see a reduction in their pensions but they will see a significant cut to other post-employment benefits.
“We should all have 100 per cent benefits. It’s not like [Bedrock] can’t afford to pay it,” says Howe. Two weeks ago, the union sent Bedrock changes it wants to the contracts but it hasn’t heard anything back, he says.
Howe adds he’s uncertain of Bedrock’s commitment to the company and he suggests the arrangement fees like “déjà vu all over again.”
The situation reminds him of the situation in 2006, when three investment companies acquired Stelco following a previous stint under bankruptcy protection. The companies only kept Stelco for a year and then sold it to U.S. Steel Corp.
“We’ve gone through this before,” says Howe. “If the scheme is successful in getting the pension off the balance sheet and getting benefits the way they are, if the company splits and the new buyer leverages the place to the hilt and they go into bankruptcy down the road, then what’s going to happen to the benefits then and the pensions being off the balance sheet?”
Hatnay, though, says he’s happy with the settlement for the salaried workers and retirees. He says the deal includes severance for salaried employees who lost their jobs earlier in the year and the recovery of terminated supplemental pension benefits for a group of retirees. “That persuaded us to vote in favour of the plan.”